June 13, 2024

Kim Kardashian has settled charges waged by the U.S. Securities and Exchange Commission (“SEC”), which accused her of “touting on social media a crypto asset security offered and sold by EthereumMax without disclosing the payment she received for the promotion.” Specifically, the SEC found that the reality star-slash-brand-builder “failed to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens, the crypto asset security being offered by EthereumMax.” In prompting the crypto tokens in her June 2021 Instagram post, Kardashian included a link to the EthereumMax website, where the company included instructions for potential investors to purchase EMAX tokens.
The SEC found that Kardashian’s post violated the anti-touting provision of the federal securities laws ((17(b) of the of the Securities Act), which “makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of such consideration from an issuer.” In order to avoid engaging in violations of the anti-touting provisions of the federal securities laws, the SEC has stated that individuals who promote “a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.” (In other words, #ad, on its own, is not sufficient here.)
In a statement on Monday, the SEC revealed that “without admitting or denying the SEC’s findings,” Kardashian agreed to settle the charges, pay $1.26 million, including approximately $260,000 in disgorgement, which represents her promotional payment, plus prejudgment interest, and a $1,000,000 penalty. Kardashian also agreed to refrain from promoting “any crypto asset securities” for three years, and to cooperate with the SEC’s ongoing investigation.
“This case is a reminder that, when celebrities or influencers endorse investment opportunities, including crypto asset securities, it does not mean that those investment products are right for all investors,” SEC Chair Gary Gensler said on Monday. “We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.” Kardashian’s case “also serves as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities,” he added.
“The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.”
In addition to the EMAX settlement, the SEC recently announced that it filed suit Bermuda-based Arbitrade Ltd. and Canadian firm Cryptobontix Inc., along with their principals – Troy R. J. Hogg, James L. Goldberg, and Stephen L. Braverman – and Max W. Barber, founder and sole owner of SION Trading, which is named a defendant in the case, for allegedly perpetrating a cryptocurrency pump-and-dump scheme.
Not her first brush with issues involving EMAX, Kardashian was named as a defendant in a class action lawsuit over EthereumMax, which accuses the token-maker and a handful of famous endorsers of engaging in a “pump-and-dump” scheme, complete with undisclosed endorsements. In the complaint that he filed in a California federal court in January, Plaintiff Ryan Huegerich claims that the defendants “misleadingly promoted and sold EMAX tokens through social media advertisements and other promotional activities, while failing to adequately disclose material connections between EthereumMax and the celebrity defendants endorsing EMAX.”
Huegerich alleged that in her Instagram post – which read, “Are you guys into crypto???  . . . Sharing what my friends told me about the Ethereum Max token! A few minutes ago Ethereum Max burned 400 trillion tokens, literally 50% of their admin wallet giving back to the entire E-MAX community” – Kardashian “did include a promotional disclosure.” However, the disclosure was “tucked in the far bottom right of the post and is just three characters long: ‘#AD,’” with Huegerich noting that Kardashian “has experience and familiarity with making misleading claims in similar promotional endorsements on her Instagram and Twitter accounts.” For example, he claims that in 2015, the Food and Drug Administration ordered Kardashian to remove a promotional post for morning sickness medication that lacked adequate disclosures. 
Kardashian has since sought to get the claims that Huegerich lodged against her tossed out, arguing that her Instagram post – which did “not” amount to “financial advice”– contained a clear disclaimer that “undermine[s] any consumer’s claim of deception.” In case that is not enough, counsel for the star argued that “platforms like Instagram and Twitter are laden with puffery and exaggeration, such that ordinary consumers should know that they are not trustworthy sources of financial advice.” And still yet, Kardashian contends, “Crucially, no named plaintiff alleges that they in fact viewed either Instagram post before purchasing tokens during the relevant time period.”  
THE BIG PICTURE: While the Federal Trade Commission has been largely unwilling to take notable action when it comes to undisclosed social media posts, other agencies – such as the Food and Drug Administration and the SEC – seem to be inclined to step in when the goods/services being promoted without the necessary disclosures rise to a certain level of importance. The SEC’s settlement with Kardashain suggests that crypto rises to that level. The parties’ deal comes amid rising attention to crypto among various agencies and lawmakers, alike, which are grappling with how to regulate the increasingly popular market, which boasts a value of more than $3 trillion.
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